By Mike Colias 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (September 4, 2020).

General Motors Co. and Honda Motor Co. plan to jointly develop new vehicles for North America through an alliance that would deepen existing ties between two longtime rivals.

The companies said Thursday that the strategic alliance would entail cooperation on everything from engineering the underlying components of a vehicle to purchasing parts. The work could begin next year, the car makers said, declining to estimate cost savings or specify any future models that could be included.

Honda executive vice president Seiji Kuraishi said the company hoped to achieve substantial cost savings in North America and would maintain its own distinct offerings under the planned partnership.

The two auto makers have signed a nonbinding memorandum of understanding to form the alliance, but details on how exactly it would operate and what aspects of the vehicles would be jointly used on future models weren't released. A committee of leaders from GM and Honda will manage the alliance, the companies said.

The plan would fortify the budding collaboration between the American and Japanese auto makers, competitors in the lucrative U.S. market that have nonetheless joined forces in recent years to work on innovative technologies.

The companies in January revealed a co-developed, podlike driverless shuttle, and Honda this spring said it would develop two electric vehicles using GM's technology.

GM's stock closed down nearly 5% Thursday at $29.48 as the broader market fell.

Global car companies face pressure to invest billions of dollars on innovations such as electric and driverless cars, technologies that are likely years from returning profits. At the same time, they must continue to fund the core business of engineering and building traditional vehicles, a capital-intensive endeavor with relatively low profit margins.

Stricter auto-emissions regulations in places such as Europe and China are only adding to the financial demands at a time when car companies are still trying to navigate through a pandemic that has plunged the car business into its worst sales slump in years.

The hefty cost burden has sparked a wave of new partnerships within the auto industry in the past decade, particularly as traditional manufacturers confront new Silicon Valley rivals with deeper pockets.

Many of the recent partnerships center on future bets like electric cars or car-sharing ventures. But more deals to share engineering costs on traditional cars are likely as global sales slow, analysts say.

"We can expect to see more such announcements as we come out of the Covid-19 crisis and automotive companies survey a much-changed business landscape," said David Leggett, an auto analyst at research firm GlobalData.

There is plenty of precedent in the car business for companies sharing the mechanical guts of a car -- the frame, axles, even the engine and transmission -- while wrapping them in distinct exterior styles with their own interior layouts and features.

Some Fiat Chrysler models still share much of their underlying components with Mercedes-Benz parent Daimler AG, relics from the failed merger between the companies. Toyota Motor Corp. and Subaru Corp., a few years ago introduced twin sports cars, the Toyota 86 and Subaru BRZ.

GM and Toyota used a common set of components to build two separate models at a shared plant in Fremont, California in the early 2000s: GM's Pontiac Vibe and the Toyota Matrix. The factory eventually was sold to electric-car maker Tesla Inc.

The proposed Honda-GM pact expands the companies' earlier collaboration to the core parts of their businesses, areas such as small and midsize sport-utility vehicles and passenger cars where the companies have long competed in the U.S. The auto makers also plan to work together on purchasing parts for their North American operations, which could help them lower prices from suppliers.

The partnership eventually could lead to GM building Honda vehicles at its factories, which could help GM absorb some of its excess U.S. production capacity, people familiar with the talks said. Joint manufacturing is part of the discussions, but nothing has been decided, they said.

GM and Honda said their pact could lead to the companies working together on research and development, including in areas of advanced safety and connected-car technologies.

The two auto makers have complementary vehicle lineups, with GM dominant in larger SUVs and pickup trucks, while Honda is strong in smaller passenger cars and crossover SUVs.

Ford Motor Co. and Volkswagen AG this year completed plans to jointly develop both electric and conventionally powered vehicles. Ford will use VW's electric-vehicle technology for future models, potentially helping the American auto maker meet Europe's toughening emissions regulations. Under the deal, Ford will build midsize pickup trucks and commercial vehicles for VW.

Fiat Chrysler Automobiles NV's pending merger with Peugeot's PSA Group is aimed in part at sharing the cost of future technologies and to leverage scale by combining two midsize global players.

Honda is roughly half the size of Japanese leader Toyota Motor Corp. An effort to get bigger nearly a decade ago led to quality problems, forcing a retreat.

Honda has been looking for partnerships to save money on development. Like GM, it is pulling back from regions where it believes it cannot be profitable. Last year, it said it would shut plants in the U.K. and Turkey in 2021, and it plans to supply the European market by exporting vehicles from Asia.

GM and Honda said their pact could lead to the companies working together on research and development, including in areas of advanced safety and connected-car technologies.

"This alliance will help both companies accelerate investment in future mobility innovation by freeing up additional resources," GM President Mark Reuss said.

--Peter Landers contributed to this article.

Write to Mike Colias at Mike.Colias@wsj.com

 

(END) Dow Jones Newswires

September 04, 2020 02:47 ET (06:47 GMT)

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